Occurrence vs. Claims-Made Policies

Under an occurrence form, it doesn’t matter when a claim is made by a claimant against an assisted living facility. The assisted living facility is obligated to file the claim as soon as possible after the facility has knowledge of the claim. Coverage attaches on the date of the accident, or occurrence. The policy that was effective on that date must respond.

Claims filed on a claims-made policy are more complicated. Each claims-made policy tends to have different rules based on the definition of when a claim is “first made”. As examples, a claim can be defined as “made” in many different ways:

incident reported

lawsuit filed

receipt of a written demand for money

contact by an attorney

complaint by resident’s family

The claim may be “made” only when “reported” to the carrier. Or it may be “made” when “received” by the assisted living facility.

To be safe, some assisted living facilities report all incidents to their carrier. Some carriers set up each of these incidents as a “claim,” although we know that few will result in a true claim. What facility wants to have their claims record with their insurance carrier show dozens of claims? These records (loss reports) are used by carriers in quoting and pricing the facilities future policies.

The assisted living facility is rightfully fearful that if they don’t make the claim by the policy expiration date, they will have no coverage under that policy. So, the dilemma for the claims-made insured is “what and when to report.”

When an assisted living facility first converts to a claims-made policy, they are assigned a retroactive (“retro”) date, which is the same as the effective date of the first claims-made policy. Any claims made must have “occurred” after the retro date. As long as the renewing carrier is willing to “backdate” the retro date to the original claims-made policy, everything works fine, granted the coverage is the same. However, if a renewal carrier several years hence refuses to backdate the retro date, then the facility has a “gap” in coverage. A claim could have occurred several years ago, and be presented (made) today. If the retro date has been moved forward, there is no coverage.

For example, an assisted living facility takes out a claims-made policy on 12/20/04 and is assigned a retro date of 12/20/04. The facility renews coverage with the same insurance carrier the next year (12/20/05) but the following year (12/20/06) they are non-renewed by their carrier or they decide to switch to a new carrier. The facility would have to find an insurance carrier who will pick up their “retro date” of 12/20/04 in order for their not to be a “gap” in coverage from 12/20/04 -12/20/06. If the facility is unable to find an insurance carrier willing to pick up their “retro date” any claim that occurred during the time period of 12/20/04 – 12/20/06 would not be covered.

Claims-made policies can be problematic upon termination of coverage. The non-renewing carrier usually offers an extended reporting period for an additional premium, which maybe be astronomical, if the insured has suffered prior claims. This period (called “tail coverage”) is usually for two years and covers claims that occurred prior to the policy’s termination date, and made during the tail period. The insured may be faced with this decision if their current carrier cancels their policy and (1) the new carrier refuse to backdate the retro date or (2) if no carrier is willing to write a new policy.

A claims-made policy is no match for an occurrence policy when it comes to coverage. However, it is cheaper in cost in the first year or two because some claims are deferred (not reported) until the future. However, after the first two years, the cost of the two policies is very similar.